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WEEKLY MARKET ROUND-UP Thru Apr 14th 2023; “Market Tug-O-War”

Hey folks, the markets are setting up for a big decision point; –rate cuts at the end of the year, or holding rates at or over 5% thru the end of the year. It is the Bond Markets vs the FEDs both of which have large divergent views on where rates will be the end of 2023. And depending upon who will win this battle will, to a large extent, help drive different asset classes to nice upside gains or losses.

Get my take on the current market environment in this week’s Market Round-Up.


US indexes ended the week higher, as investors weighed slowing growth signals against signs that inflation pressures were receding a bit more than expected. Volumes picked up but remained muted for much of the week, as investors waited for the unofficial start of quarterly earnings season on Friday, kicked off by reports from banking giants JPMorgan Chase, Wells Fargo, and Citigroup. All three topped consensus estimates, seemingly helped in part by customers moving deposits from smaller, regional banks, which have come under scrutiny following the collapse last month of Silicon Valley Bank and New York-based Signature Bank. Analysts polled by FactSet were expecting overall earnings for the S&P 500 to have contracted 6.5% on a year-over-year basis in the first quarter. Despite the banking turmoil, earnings in the financial sector were expected to increase moderately.

The most highly anticipated event of the week may have been the CPI for March. Stocks jumped on the news that the CPI rose only 0.1%, a tick below expectations, bringing the year-over-year rate to 5.0% (down 6% from Feb), the slowest pace since May 2021 but Core CPI came stayed stuck around 5.6%. The indexes fell back later in the day, however, which our traders attributed in part to comments from Fed Bank of Richmond President Thomas Barkin, who stated that “there is still more to do” in calming inflation. The next day we saw data on PPI declined 10 bps in March marking the first decrease since April 2020, also better news on the inflation front. The reports are not yet consistent with the Fed being able to cut rates substantially by the end of the year, as many investors seem to expect. Futures markets were pricing in a 46% chance on the federal funds rate ending the year at least 50 basis points below its current target range of 4.75% to 5.00%, and a roughly 78% chance that the target would be at least 25 basis points lower. The Feds say otherwise – Hence the large market “Tug-O-War”. And while March retail sales fell more than expected, the University of Michigan’s preliminary gauge of consumer sentiment rose surprisingly.

Stocks in Europe rose as recession fears waned while rates on Euro debt rose in anticipation of more rate hikes. This will further strengthen the Euro vs USD. Eurozone industrial production in February rose 1.5% sequentially and 2.0% year over year, which was stronger than expected. However, March retail sales volumes fell 0.8% sequentially, matching estimates. Meanwhile, the IMF still predicted that the UK’s economy would shrink 0.3% in 2023, a projection that was less than its previous forecast.

Japanese equities showed strong gains over the week Kazuo Ueda was sworn in as the new BoJ governor on April 9. And at his first press conference, Ueda issued a series of dovish remarks that supported market sentiment. The IMF revised downward its projection for Japan’s 2023 economic growth to 1.3% from 1.8% in January.
And in China, inflation eased for the second straight month in March. China’s consumer price index rose 0.7% in March from a year earlier, down from a 1% rise the previous month. On the trade front, China’s exports unexpectedly rose 14.8% in March from a year ago, surprising analysts who had forecast a decline and marking the first increase since September. Imports fell a less-than-expected 1.4%.

Enjoy this week’s round-up;

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